THIRD-PARTY FUNDING IN INTERNATIONAL COMMERCIAL ARBITRATION: EVOLUTION OR REVOLUTION?

Can you imagine being the CEO of a small company which has a legitimate claim against a much larger organisation with a budget for legal costs that dwarfs yours, and due to lack of funding to pay for your own legal costs, you could not pursue this claim? Third-party funding offers the ideal solution to this dilemma.

Third-party funding (TPF) was created to address the dilemma where, due to a lack of funding to cover legal costs, meritorious legal claims are settled for less than their actual commercial value, and in some cases abandoned altogether. TPF refers to an arrangement between a specialist funding company and a client (typically the claimant), whereby the funder agrees to finance some or all of the client’s legal fees in exchange for a share of the ‘case proceeds’ (usually the recovered damages). In principle, TPF facilitates access to justice where a claimant, otherwise, would not have been able to pursue its claim in a just and equitable manner. In other words, TPF allows access to justice for impecunious claimants, permitting meritorious claims to proceed which would, otherwise, not have been pursued. As the use of TPF has increased, so has the number and range of institutions that are prepared to finance international arbitrations. In addition to specialised third-party funders, insurance companies, investment banks, hedge funds and law firms have entered the market. Dissidents claim that the rise of the TPF regime will influence a rise in frivolous litigation. They argue that a significant proportion of any amount one party recovers from the other party will be paid to the funder and while the funder will not control the case, it will have an impact on how the case is conducted and, particularly, on any decisions relating to settlement.